A new report released by investment database and technology solutions firm eVestment takes the 30 largest funds to determine their exposure and tail risk.
The “Q3 Hedge Fund Exposure & Tail Risk: Deconstructing Risk and Return Expectation and Stress Testing the 30 Largest Funds” research report released on Tuesday indicates that the 30 largest funds in the eVestment research database, which manage a total of $370 billion in assets, is expected to return an average of 0.73% in the next month. The same asset-weighted portfolio of the hedge funds would return 3.1% in the best-case scenario, according to the report’s Expected Tail Return at a 95% confidence level.
Of 11 historical stress test scenarios, a repeat of the 2000 burst of the dot-come tech bubble and the NASDAQ market crash pose the largest risk of loss for the group, while the 2008 global financial crisis surprisingly ranks fourth in terms of expected stress test losses.
The report also indicates that while the largest portfolio losses stem from exposure to U.S. investment grade fixed rate asset backed securities, it is indicative of this group’s exposure to global securitized credit markets.
eVestment conducted the stress test scenarios using the firm’s RiskPlus product, which incorporated returns-based analysis and a fat-tailed methodology to create an indicative rundown of the 30 hedge funds.
Founded in 2000, eVestment acquired hedge fund analysis provider Pertrac and cloud-based hedge fund technology provider Fundspire last year. It now offers one of the world’s largest traditional and alternative investment databases.